The Chancellor's autumn statement, and his tax-credits U-turn, was politically
brilliant. But he is gambling on windfall which may never appear

The age of austerity is over, for now at least. George Osborne, the happy beneficiary of a £27 billion windfall, decided to use the money not to pay down the budget deficit more quickly than he already intends to, but to abandon some of the spending cuts that everyone had anticipated. With a statistical flourish, the Chancellor of the Exchequer wafted away the difficulties he faced over the imminent reduction in tax credits with the simple expedient of dropping the policy entirely.

Politically it was brilliant: the transitional protection for benefit recipients that had been predicted would still have left millions of people out of pocket, so why prolong the agony and the criticism? But the tax credit cuts were supposed to be an integral part of a much-needed reform of welfare and not merely a money-saving exercise. He still expects to save £12 billion from the welfare budget but he must not forsake the wider agenda of reversing Gordon Brown’s dependency culture.

This was a sensible use of the additional funds that the Office for Budget Responsibility (OBR) had fortuitously provided by revising its forecasts for economic growth, tax receipts and inflation. But it is incumbent now on chief constables to use this financial reprieve to prioritise public safety and visible policing.

These key announcements in Mr Osborne’s Autumn Statement delighted his backbenchers and left the Labour Party floundering. Even by the abject standards we have come to expect from the Opposition front bench, the response from John McDonnell, the Left-wing shadow chancellor, was beyond parody. He may have been joking when he quoted from Mao Tse-tung’s Little Red Book; but judging by the glum looks on the faces of his MPs they were not amused.

Indeed, there was little the Labour Party could possibly complain about. Mr Osborne is putting more money into the NHS, ring-fencing overseas aid, protecting education, boosting pensions – effectively moving on to the centre ground that the Opposition has abandoned by electing Jeremy Corbyn as its leader. The Tories may have won a general election in May committed to reducing welfare bills and shrinking the state, but Mr Osborne is apparently able to do this by causing the minimum amount of pain.

But someone has to pay, and among the Chancellor’s targets were small landlords, savers (who will be hit by freezing Isa allowances) and businesses. The imposition of an additional 3 per cent stamp duty on second home purchases and buy-to-let properties will raise £1 billion but risks choking off investment in rented residential properties in a sector where landlords already face a cut in mortgage tax relief. Combined with new capital gains rules this may force investors out of the housing market.

However it is the lack of house building that is at the root of this crisis and Mr Osborne is once again trying to push the private sector to build 400,000 “affordable” homes for purchase in an effort to get young people on to the property ladder. So far, similar incentives have failed to trigger the elusive building boom; it is to be hoped this latest package proves more successful.

Another levy will be placed on the payrolls of big businesses to raise £3 billion to fund three million new apprenticeships from 2017. Coming on top of the extra costs of automatic pension enrolment and the Living Wage, this will cause understandable dismay in the country’s boardrooms. Mr Osborne feels that, if commerce and industry want a skilled workforce, they should pay for it – but they may employ fewer people as a consequence.

Indeed, this is of a piece with Mr Osborne’s efforts to reduce the funding coming from the central state. Social costs will increasingly be shifted on to local taxpayers through a new council power to raise up to 2 per cent for adult elderly care; and council tax precepts will pay for extra police funding.

Overall, Mr Osborne is still hoping to run a £10 billion budget surplus by the end of this Parliament and to begin paying down the nation’s debts while at the same time reducing the share of wealth spent by the state to around 36 per cent. These are commendable ambitions; but he is gambling on the absolute reliability of the OBR’s forecasts of steady economic growth combined with continued low inflation and borrowing costs.

If this benign set of circumstances fails to materialise, Mr Osborne may find that the roof Labour failed to repair when the sun shone still has holes in it when the rain returns.